There’s some good news for highway developers. Banks can now start lending to public-private partnership (PPP) road projects if at least 80 per cent of the land is made available by the national highways authority. Till now, lenders had been insisting that the developers take complete control of the land before getting funds.
The Department of Financial Services has conveyed this to bank chief executive officers, after a decision was taken by the Committee of Secretaries, an inter-Ministerial group, multiple sources in the know confirmed to Business Line .
The move is likely to ease funding for highway developers, especially on PPP projects. In highway development projects, the National Highways Authority of India (NHAI) acquires the land and makes them available to developers.
The NHAI had backed the proposal to allow fund disbursal once 80 per cent land was available, saying that bankers should draw comfort from the fact that developers were being allowed to collect toll after 75 per cent project completion.
IIFCL, which lends to highway projects, also decided in its recent board meeting to start disbursing loans for road projects after 80 per cent of required land is available.
The move should ease fund flow to around 30 highway projects that were awarded in 2011-12 and 2010-11, but which have not tied up funds. A source in the highways authority said barring six-odd projects, over 80 per cent land was available for most of the others. For around a year now, banks have been demanding complete control of land for highway projects before disbursing loans. Prior to 2012, they were lending as soon as 80 per cent land was tied up.
To leave out bypass
The financial services department has also conveyed that in case highway development includes a bypass and land for this is unavailable, then 80 per cent can be calculated by leaving out the bypass.
In highway development projects in PPP mode, the private developer is required to arrange funds, which, in most cases is arranged by way of loans from banks.
As on March 2012, banks had lent Rs 114,000 crore to the road sector, which is 18.5 per cent of the total bank exposure to infrastructure.